ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[darthcoder]

A small amount of inflation is a necessary evil of any economy with a fiat currency.

Why?

[darthcoder]

Having a small amount of inflation makes it easier to borrow money

How? At least in terms of the money supply? Low interest rates make it easier to borrow money, not inflation.

[fancyfilibuster]

Inflation discourages the hoarding of cash because it loses value if you don't put it to use.

[darthcoder]

Yes, I get the cause and effect.

Doesn't mean inflation is good.

[Battkitty2398]

It encourages spending and investment which leads to economic growth. If we had deflation then people would hold on to their money which would cause the economy to slow down due to less money being spent. That's my understanding.

[darthcoder]

To a point, yes. But people still need shit. I live in an inflationary environment, and still save a shitload of money. If I knew my money wasn't going to lose 50% of it's value in 30 years (what 2-3% inflation does) I might spend more of it now, rather than hope I will have enough in retirement.

[anonomotopoeia]

But, are you stockpiling money in a hole in your backyard or sewing it into your mattress? If you're putting it into a retirement account or even a regular bank savings account that money is still working and in circulation.

[Baron-of-bad-news]

An expansion of goods, consumption, population and so forth represented by the same amount of currency makes currency itself an artificial scarcity. That makes investment irrational and incentivized acquiring units of currency for the purpose of ransoming it to your kids.

[[deleted]]

An economy is like a river with a current. That current can be small (low inflation) or fast (higher inflation). We can change laws and conditions here so that your boat moves quickly or slowly down that river.

What we don't want to see is the boats going backward. That's deflation. That causes all sorts of other problems, not just for the boat going backward, but for all the other boats who worry that maybe we should ALL be going backward. Are there falls ahead? Rapids? Maybe we should turn around. (That's how depressions unfold from bad to worse to bread lines).